Landfill tax: prescribed landfill site activities

Question proposed, That the clause stand part of the Bill.

The clause deals with a fairly localised issue relating to landfill tax. It will introduce changes to landfill tax legislation from 1 September 2009. The changes originated from the Court of Appeal’s judgment in the Waste Recycling Group Ltd case of 2008, commonly known in the industry as the WRG case. The case related to certain materials that would otherwise have gone to landfill being used by the site operator to improve the site; for example, to maintain roads or for daily cover requirements. The court ruled that such materials were not subject to the landfill tax. In other words, landfill materials used on the infrastructure of the site were not subject to the tax.

The legislative changes in the Bill are intended to clarify the law by restricting the scope of the court decision so that landfill tax will continue to apply in the majority of circumstances. In other words, an activity on a landfill site will be subject to landfill tax, and HMRC has wider powers to make any provision to ensure that such an activity is subjected to the tax. In fact, under the provision, an order can be made to vary almost anything except the rate of landfill tax itself.

I have a couple of questions from the explanatory notes. I am sure that there is a perfectly good reason for this, but why the need for the different introduction dates? Generally, most paragraphs take effect from the date of Royal Assent, save for paragraphs 10 and 11, which take effect from 1 September. Is there any basis for that date? Paragraph 17 of the background notes says:

“The removal of the requirement that the landfill tax return form is prescribed in regulations is a matter of administrative convenience which will bring landfill tax in line with the other environmental taxes (aggregates levy and climate change levy).”

I appreciate that those two taxes are outside the scope of today’s discussion, but I would be grateful if the Minister could confirm whether we are seeing a standardisation measure across a whole selection of taxes.

In support of the proposed legislative changes, HMRC also announced a consultation exercise, seeking views on the preferred and alternative options for change, which are aimed at modernising the definition of a taxable disposal of waste at a landfill site, and the definition of wastes that should qualify for the lower rate of tax. Interested parties have been invited to make comments before 24 July 2009.

I note that the consultation closes in four weeks. I am not asking the Minister to make a judgment on the results of that consultation, but could she tell us how the consultation is progressing and how many responses it has had to date? Will she tell us whether the new rules will bring in a change in the tax take, what efforts HMRC has made to inform landfill operators of the nature of the clause, when it will take effect and what the likely impact will be on the sort of behaviour that gave rise to the court case in the first place?

Let me provide a bit of background. Landfill tax is payable each time waste is disposed of at landfill. It is an environmental tax that seeks to ensure that the full environmental cost of waste  disposal to landfill is reflected in business decision making. Last year, the Court of Appeal found that where material is received on a landfill site and put to use on the site, there is no liability to landfill tax. The Government have accepted that decision and we have accordingly invited applications for refunds of tax.

The Waste Recycling Group case means that we are now in a position in which landfill tax legislation relating to use of waste on site does not reflect our policy intention. The use of waste at a landfill site is, in effect, disposal in terms of environmental impact. It is treated as disposal under environmental protection regulation and, on that basis, it should be taxed as disposal. However, the WRG judgment means that, at present, no tax is due. Let me give an example. The use of inert waste as a protective cover for landfill at the end of the working day has the same disamenity of lorry movements and noise as the general landfilling of inert waste. Therefore, it is right that the lower rate of landfill taxable for inert waste should apply to this use for daily cover.

The WRG case means that the Government are receiving less revenue from landfill tax. We estimate that it will amount to £200 million over three years if not addressed. The changes introduced by this schedule will mitigate such revenue losses. However, I stress that this is a case of mitigating revenue losses and not extending the application of the tax.

The Government are determined that landfill tax should remain robust and a cornerstone of our policy for reducing the UK’s reliance on landfill. To that end, the schedule provides powers to make a Treasury order, prescribing landfill site activities that are taxable in addition to taxable disposals that are already caught by landfill tax legislation.

We have published a draft of the Treasury order, which we intend to lay following Royal Assent. It lists eight uses of waste at a landfill site and they are all uses that do not involve the creation of a tangibly engineered structure. The order will be subject to approval by the House within 28 days of it being made. The House will therefore have an opportunity to debate it in due course.

The schedule also seeks to ensure that landfill tax legislation remains coherent following the WRG judgment by removing redundant provisions. The exemption from tax of the use of waste for site restoration is removed because, as a result of the judgment, tax would not in any case be due. Similarly, tax would not be due in respect of waste for processing or recovering held in designated areas, often known as tax-free areas, so the tax-free area provisions are therefore removed.

The schedule protects HMRC’s access to information on site restoration and processing and recovering activities at landfill sites. That information is important to HMRC’s ability to determine whether a taxable disposal has taken place. The schedule provides powers for HMRC commissioners to make regulations about the information that is to be submitted to them. We have published a draft of those regulations, which, with the Treasury order, have been sent to all registered landfill tax operators for information and comment.

In practice, the removal of the site restoration exemption and the provisions on tax-free areas will be directly replaced with requirements to supply HMRC with similar information to that already required under current legislation. Landfill site operators are unlikely to see any practical difference, but, importantly, there will be little or no increase in the administrative burden.

As well as the changes that I have described, the schedule makes one minor provision: it allows the landfill tax return form to be set out in a public notice rather than in secondary legislation, which brings the position for landfill tax in line with the other environmental taxes. It will therefore be easier to make amendments to the return form, should they be required. The change will have no appreciable impact on landfill site operators.

All the changes will be put in place from 1 September 2009—a time scale that gives landfill site operators adequate notice, but reflects the importance of quickly bringing the tax in line with policy objectives.

The Exchequer Secretary is being generous in giving way. She surprised me when she said that £200 million would be lost over three years. Does that sum relate only to the company that was at the centre of the court case? I realise that she cannot disclose the tax paid by particular companies, but it seems a widespread practice to use landfill materials to improve or change a site. Am I right in thinking that that practice has been going on throughout the country?

I do not have to hand the basis on which those figures were calculated, but I am happy look into the matter and to pass the information to the hon. Gentleman.

A question was asked about different dates for the introduction of rates. Certain powers need to be brought in to enable the making of the underpinning regulations. From the point of view of taxpayers, the changes come into force on 1 September 2009.

I can now tell the hon. Gentleman that the £200 million figure relates to the whole industry, not just to one company.

I was asked about our progress with consultation. We have received four formal responses, and a number of representative organisations have asked to meet HMRC and HMT. As the hon. Gentleman said, the consultation process does not end until 24 July. To ensure that landfill site operators understand the technical changes, we will publish full public guidance before the changes come into effect. We have already provided operators with a draft of the guidance.

I am confident that in the short term the changes will ensure that landfill tax will continue to play a central role in supporting waste policy. I commend the clause and schedule to the Committee.

Question put and agreed to.

Clause 118 accordingly ordered to stand part of the Bill.

Schedule 60 agreed to.